How to Establish a Sustainable Family Governance Structure

Family governance intends to establish how within a family owned and controlled company the business is organised once more than one generation gets involved in the business and/or more family members become actively involved in the family company. Underneath you find the first steps you need to take to set up a correct family governance structure. Family governance is a topic that starts to become more and more important for business owners.

 Steps

    1
    Establish if family governance is indeed important for you and the family business. When you own a business for 100% and your only child intends to take over the business, family governance will not be such a relevant issue. But when there is joint ownership of a business with other relatives, and you and all those relatives have several children, it can be expected that the next generation will not completely agree on the future of the company.
    2
    Draft a family constitution in which the basic principals of the business and the family′s views and policies are written down. The family constitution gives an outline of the principles to which the family commits. Principles like the core values, vision, and mission of the family business. Furthermore the constitution defines the role and power of key governance bodies within the family company like: management, family members/shareholders and board of directors.
    3
    Establish a family council. The family council is established as a representative governance body for the family members in coordinating the interests of the family members in their business. This is especially in more sizable families, over 30 family members, an essential structure to communicate between the family members and the management of the business.
    4
    Organise regularly family assemblies. Meetings with the family members that take place several times per year in order to i.e. share information about the business with family members, organise educational courses for the younger generation, to decide on or share information with respect to the strategy of the company and to discuss possible changes in the ownership structure.

 Tips

    Establishing family governance for a family owned business is definitely not easy. In most cases it will therefore be necessary to consult with external counsel in order to be advised professionally.